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Money Demand Function in India Before and After Liberalization

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  • Y G Sivaram
  • Ash Narayan Sah

Abstract

This paper examines money demand function in India before and after liberalization. The stability of money demand function has been recognized for any meaningful conduct of monetary policy. Financial liberalization in India started in the 1990s. A decade of reforms has brought a major change in the operations of the banking system and financial markets. The reforms in the banking sector, primary market, secondary market and debt market of Indian financial system may have a great impact on the money demand relationships. The authors have used annual data collected from RBI for the period of 1951-52 to 2001-02. The authors employed Johansen's co-integration technique and Vector Error Correction Model (VECM) for empirical analysis. They also tested for structural break by Chow-Test. The results establish that the elasticity of money demand is less than one and there is no evidence of structural shift indicating stability of money demand function.

Suggested Citation

  • Y G Sivaram & Ash Narayan Sah, 2005. "Money Demand Function in India Before and After Liberalization," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 6-15, November.
    • Handle: RePEc:icf:icfjmo:v:03:y:2005:i:4:p:6-15
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